Financial matters

This module covers:

  • A fundamental understanding of handling money
  • Knowing what reporting requirements there are for the structure of your organisation
  • Knowing the potential risks involved

Many of the financial matters which you will need to consider will be quite specific to your group, and your organisation’s structure. We hope to bring some issues to your attention which you can look into, if and when necessary.

Preparing to handle money

If you have a constituted community group set up specifically for the community benefit fund, you should be familiar with the regulations regarding handling money.

If you are unsure, it is vital that you look at your group’s constitution and any detail on processing funds. Some groups will be unable to receive funds – revisit Module 3 if necessary.

Reporting - What is nescessary, what is advisable?

You will note that different organisation structures will require differing levels of reporting. While an unconstituted group has no official requirements, an SCIO must report regularly to OSCR.

A registered company must report to Companies House, and there are further requirements for directors. Despite these disparities, we strongly recommend that regardless of your group’s structure, you look to maintain complete and thorough reports for your accounts. It is vital that your entire process is open and accountable, as community benefit funds can be controversial and sensitive issues in some areas.

Ensure you record and minute all events, accounts and activities, and make these available to the community as soon as possible.

Your paperwork trail must be clear and accountable – all community members are stakeholders in your fund, so you should aim to keep strong communication with them, e.g. send regular newsletters, keep website updated.

It will be vital to maintain strong records of where your money has gone – are you going to ask for evidence of fund spend from grant recipients? Will grant recipients have to report back to you, or provide invoices?

Equally, you must be aware of any confidentiality agreements – have discussions with the developer to ensure you do not disclose any sensitive information, and be aware of potential data protection problems when dealing with individual grant recipients.

What are the tax implications for your group?

Note that your income from community benefit payments is not tax exempt and is subject to standard taxation, unless you have charitable status. Look into the relevant details with HMRC, as tax details will depend on your organisation’s type, and the level of funds you are receiving. Consult with the VAT office for annual payments in excess of £77,000.

Risks and insurance

Be aware that since the closure of the Association of Scottish Community Councils1, there is no longer insurance support offered to community councils. Again, depending on your community group’s structure and constitution, the liability of individuals will vary.

In some structures, there will be risks for the directors or trustees. You should have identified any possible risks when choosing your structure and setting up your organisation.

External party involvement

In some cases, you may look to fund an external party to process and help administer the funds. Foundation Scotland, for example, can be seen in this role in projects across Scotland. (You can find out more about their involvement on the Community Benefit Register – Here)

In the first instance, it is worth asking the developer if they would consider funding this separately to their fund payments. If not, it is advisable to put this involvement out to tender. It can be difficult to know how much to charge for these services, but as a rule of thumb, we would recommend 10% of the fund itself. By tendering the work, you are fully accountable and cannot be accused of any bias. You should also be able to find the best value service, locally.

Local Energy Scotland can tender this work for you for free – please email to find out more.

Useful contacts and resources

Many accountants will provide an overview of VAT for the range of community organisations, for example:
http://www.jcca.co.uk/tax/vat/introductionvat

HMRC outline the specific requirements, and explain how to correctly notify HMRC that you will be receiving income. For example, for Trusts:
http://www.direct.gov.uk/en/MoneyTaxAndB enefits/Taxes/Trusts/Introductiontotrusts/DG _191713

HMRC also have a range of guides on how to keep good accounting records, you should find some useful information here:
http://www.hmrc.gov.uk/recordkeeping/ index.htm

Foundation Scotland, available at:
http://www.foundationscotland.org

If you have any specific queries on accountancy or finance, please get in touch with Local Energy Scotland and we will do our best to help you find the support you require.

1 In April 2012 – further information is available at: http://btckstorage.blob.core.windows.net/site853/Calendar/20110816/ASCC_201107_ClosureDocs.pdf